KUALA LUMPUR: A think tank today urged Putrajaya to aim for an expansionary national budget to help the country cope with global economic challenges even if it means forgoing a budget deficit of under 3%.
At a media briefing on its quarterly economic tracker for July to September, the Socio-Economic Research Centre (SERC) spoke of concerns over a global recession, made worse by the prolonged US-China trade war, volatile oil prices and geopolitical risks like Brexit and conflicts in the Middle East.
SERC executive director Lee Heng Guie said these uncertainties had impacted the economy, contributing in particular to a slowdown in the growth of private investments and exports as businesses adopt a more cautious approach.
However, he said the good news was that private sector consumption and consumer spending were “holding the fort”.
“Being a small and highly open economy, Malaysia remains vulnerable to external trade or financial shocks,” he said.
He urged Putrajaya to continue enhancing economic resilience and to introduce structural reforms to ensure sustainable economic growth.
“Delays or resistance to the reform agenda could undermine confidence, leading to lower investment and growth,” he added.
Given the global economic challenges, however, he said the government should on a more immediate front aim for an expansionary budget with an increase in supply of money in the economy, whether through increased spending or tax cuts.
He said this included allocating bigger budgets for development with a focus on education, utilities, ports, healthcare, housing, digital infrastructure, tourism, industrial development and small and medium-sized enterprises.
He also proposed an expansion of job-matching services and the introduction of an “attach-train-employee” programme by giving incentives to the private sector to provide job opportunities for fresh graduates.
He spoke of a need to increase productivity and skills through allocations for programmes, adding that private investments can be revitalised through incentives, allowances and freezes on foreign worker levy hikes.
He also suggested that the government enhance consumer spending through more personal and lifestyle tax reliefs, as well as greater direct cash assistance for the Bottom 40 group.
“The persistent overhang in residential and commercial properties also requires urgent and prompt policy intervention,” he said, adding that there was nearly RM25 billion in unsold properties in the first quarter of the year.
Lee said the government could review the minimum threshold of RM1 million for foreigners to buy properties, noting that only 1% of homes in the country were owned by foreigners as of 2016.
He also urged the government to abolish the 5% real property gains tax on the disposal of properties after the fifth year.
Although an expansionary budget might see the government miss its target of a 3% budget deficit, Lee said it was necessary.
“It’s still a deficit but perhaps they can compromise a little bit and have a deficit of 3.2%.
“Don’t fixate on the 3% target. We need an expansionary budget to counter the effects of the recession, we need to protect vulnerable groups.”
He said based on his forecast, the shortfall from the sales and services tax should be manageable as the government is still meeting its revenue targets for the first half of the year.
He said this received a boost from the special one-off dividend from Petronas as well as revenue from the sale of assets and the new departure levy.
Finance Minister Lim Guan Eng will table Budget 2020 in the Dewan Rakyat on Oct 11.